What does conditionally approved mean, and what to do next

When you need home financing, you ultimately require loan approval from your chosen lender. But there are actually a few different types of approval, including conditional approval on loan.

What does conditionally approved mean? What are the different conditions for loan approval? And what are the steps after conditional approval you should prepare to take? T

his article answers these and other important questions.

What does conditionally approved mean?

It’s normal for buyers to wonder: What is conditional approval? Being conditionally approved for a mortgage loan indicates that your lender has reviewed your mortgage application and decided that you meet important requirements for financing. While it does not mean “final approval,” which requires meeting several other conditions, it’s a good sign that your loan will probably be greenlit.

But you may need to provide the lender with additional information or documents, like bank statements, recent pay stubs, and employment verification. After you fulfill these final lender requests, your mortgage loan can proceed to final approval, and you can be cleared to close on the property.

“Conditionally approved means that underwriting has looked into your credit, income, assets, and property. But it still needs more details or proof before final approval,” explains Bhavin Swadas, a real estate and finance expert at Roar the Deal.

“Think of conditional approval as an advance of nearly finalized approval, but with a few loose ends needing your attention. It tells you that the loan is nearly done, but some paperwork is still needed so that there are no surprises on either side.”

...in as little as 3 minutes – no credit impact

Other types of mortgage approvals

Mortgage loan conditional approval isn’t the only type of financing clearance you can get from a lender. Here’s a breakdown of other types of mortgage approvals.

Prequalification

Mortgage prequalification is the simplest first step you can take in the financing process. It involves the lender checking your basic self-reported financial details, including earnings, assets, credit, and debts. Prequalification provides a rough estimate of how much you might qualify for to borrow. This is usually a fast and minimal evaluation that doesn’t necessitate a hard credit pull or complete documentation.

Still, it can be helpful because prequalification allows you to better understand what you can afford before you begin shopping for a home and submitting a full mortgage application. Just keep in mind that if you get prequalified, it’s no certainty that you will receive loan approval or get a lower mortgage rate.

“The terms ‘prequalification’ and ‘preapproval’ are often used interchangeably, but they are different,” notes Martin Orefice, founder of Rent To Own Labs. “You want to ensure you have a clear understanding of exactly what your lender means by each of those terms.”

Preapproval

Getting preapproval means you’ve undergone a more thorough and official financial check from the lender that involves submitting several key documents, getting a hard credit check, and receiving a conditional commitment letter.

Here, the lender will more thoroughly scrutinize your income, debts, assets, and credit score to calculate the amount of money you are eligible to borrow. Prequalification merely provides an estimate, but preapproval is a more likely indication that you will ultimately receive final loan approval – although this is not guaranteed.

“Receiving preapproval is an absolute must before starting your home search because it enables you to make a credible offer on a home,” continues Orefice. He notes that sellers will take you more seriously if you can provide a preapproval letter from your lender.

Verified/commitment-style approvals

Verified mortgage approval is an even higher level of validation that the lender has carefully investigated and confirmed your financial details. Prequalification only involves self-reported information, and preapproval more thoroughly checks documentation, but verified approval signifies that underwriting has already substantiated your creditworthiness and financial information.

It provides an even more compelling assurance to sellers that your finances are in order and your mortgage loan will probably close without a hitch.

“Verified approval or commitment is based on an underwriter’s comprehensive analysis of your credit, income, employment status, assets, and debt. It also documents evidence needed to demonstrate acceptable sources of funds used for down payment and closing costs,” says Tim Choate, founder/CEO of RedAwning.

Final approval

The last financing stage is final approval. This is granted when all lender conditions are satisfied and underwriting has completed its work. Your finances have been verified, the property has been appraised, the title report has been issued, evidence of homeowners insurance has been checked, and your lender is prepared to verify that you are clear to close.

With final approval, you are guaranteed to receive funding once closing is completed.

...in as little as 3 minutes – no credit impact

Common conditions to meet to get final approval

There are several hurdles you will have to clear to reach the final approval stage.

“Common conditions imposed by lenders include obtaining your most recent pay stubs, tax documents, employment verification letters, and explanation letters for any unusual gaps in your credit history and large transactions,” Swadas continues. “Conditional and final approval of your loan also requires proof of homeowners insurance, property appraisal, and title and lien discharge documents revealing no ownership disputes.”

Realtor Omer Reiner says it’s crucial to focus on checking off a lender’s conditional list if you want to move into the final approval phase.

“If you run up your credit or otherwise change your financial situation at this time, the lender can still deny the final loan. And keep in mind that once you have the home appraised, it could appraise for less than the amount requested for the loan. The lender will not agree to this kind of upside-down situation. In this case, you would need to come up with a larger down payment to bridge the appraisal amount and the loan amount.”

What happens after getting a conditional approval?

If you have received conditional approval of your loan, you must meet the lender’s conditions indicated with little delay.

“This includes clarifying and submitting the requested supporting documents, after which your file will go back to underwriting,” says Swadas. “Once all conditions set by the underwriter have been met, your lender will give the go-ahead to finish the loan documents.”

The time that elapses between conditional approval and final approval can vary.

“Remember to double-check with your lender on the expiration date of their conditional approval, as you will need to complete their required tasks before the time is up. Generally, if you have a conditional approval, you have 60 to 90 days, although some lenders will give you a deadline of only 30 days to get your things in order,” Reiner notes.

Can a conditional approval still be denied?

Getting to the conditional approval stage offers no certainty that your loan is assured.

“Loan denial is a more common occurrence than many realize. Low appraisals, changes in employment, new debt taken on during the process, or a significant drop in credit score are all common reasons. Even title problems – such as open liens – can trip up a file late in the process,” cautions Choate.

“I know of one case that blew up two days before closing because the borrower financed some new furniture, putting their debt-to-income ratio out of whack. It’s a textbook example of improper celebration before the party starts.”

The good news is that conditional approvals usually proceed to final approval, although nothing is guaranteed.

“If you cannot provide enough proof of assets or a sufficient income history, the lender could turn you down,” adds Orefice.

How can you prevent a denial after conditional approval?

To sidestep conditional approval denial and improve your odds of final approval, follow these best practices:

Avoid acquiring new debts. That means resisting the urge to make hefty charges on your credit cards and opening new credit accounts. Bypass major purchases like a new vehicle, furnishings, or appliances prior to closing on your loan.

Don’t change or lose your job. Your lender highly values job stability and a stable record of employment with sufficient earnings.

Promptly respond to lender requests. If the lender asks for additional documentation or financial proof of something, get back to them quickly. “Often, loan denial comes from silence or delay, not disqualification,” says Choate.

Manage any outstanding debt collections and/or legal issues expeditiously. Pay off any outstanding debts that have landed you in collections, and work to quickly resolve any lawsuits or legal complications.

Continue to pay your bills punctually and in full.

Avoid unexplained or large withdrawals or deposits. Your lender will closely track your banking activity; significant transactions can trigger a red flag.

Use your credit wisely. That includes not co-signing on anyone else’s loan and not closing any existing or old credit accounts.

Conditionally approved FAQs

Why does conditional approval matter?

To home sellers, real estate agents, and mortgage lenders, conditional approval means your loan is close to the closing phase, which helps solidify your standing as a buyer in the market. Conditional approval demonstrates that the lender has done most of the heavy lifting. It gives some buyers assurances in negotiating and allows sellers to zero in on a serious bid. It also minimizes surprises in the closing process, as there is often minimal financial review after this stage.

How long does going from conditional to clear to close take?

The process of going from conditional approval to clear to close can often take one to three weeks. The speed will depend on how quickly you meet the lender’s requirements and how busy its underwriting department is. Appraisals and third-party verification are often responsible for the longest delays.

How long is a conditional approval valid for?

Conditional approval is typically good for 60 to 90 days, depending on your lender’s policies. Beyond that, new documentation could be needed – especially for earnings, employment, or credit verification. This is because the lender wants to ensure nothing significant has changed since it last reviewed your file.

Conditional approval: Not a guarantee, but a good sign

A conditional approval is among the most misunderstood steps in the home buying process. It’s not a guarantee of receiving financing, but it’s a favorable sign that your financials are aligned with the lender’s risk profile.

“Think of it as a ‘ready to finalize’ signal. If you are consistent and responsive, closing is usually just a matter of time, not luck,” adds Choate.

...in as little as 3 minutes – no credit impact